Golden Rule #1 – Spend Less Than You Earn

Spending less than you earn.

We’ve all heard it before yet so few people can do it. Why? Because of the societal pressures around us. We’re inundated with advertising to buy things, our friends and family are always buying the latest things and showing them off to us, we want to feel included so we buy the same things everyone else is, or we try to relief stress by shopping. These things may feel good now but they’re hurting us in the long-run. They’re crippling our financial future.

By spending more than we earn, the chances of achieving financial freedom are ZERO. There’s no chance.

So what do we need to do? I’ve broken down some of the things we need to focus on to make sure we spend less than we earn. There are many ways to do this:

  • We can keep spending the same but increase our income
  • We can keep our income the same and reduce spending
  • We can increase our income AND reduce our spending
  • MY FAVORITE: Increase our income, reduce spending, AND minimize taxes! I’ll be covering how to do this in more depth over the course of my posts but I’ve summarized them below.


Income is part of the equation that people often don’t focus on. Increasing income can be an important part of spending less than you earn and obtaining financial freedom. What are some ways to do this:

  • Find a side hustle. There tons of opportunities out there. You just have to dig a little. For example, you could drive with Uber. Try finding a gig on Craigslist. I know some people who bartend on weekends to make some extra cash – you’d be surprised what drunk people tip.
  • Go back to school to bolster your credentials. This can often lead to promotions or a bump in salary at an existing position. For example, teacher’s who obtain a Master’s degree often get a bump in salary upon completion.
  • Go to school to start a new career. If you aren’t happy with your current career or never went to post-secondary school, consider going now. There are online and night school programs available across Canada and the US. Before going to school, I recommend thoroughly researching your career options. Focus on getting the best return on your money. Focus on degrees that will land you practical jobs such as those in accounting, engineering, teaching, computer programming, computer networking and security, or dental hygiene. Here is a good article that covers the top 50 degrees for return on investment.
  • Focus on your investments. If you have investments or some excess cash saved, invest in assets that pay you income. Find investments that pay you more income. This can include stocks, bonds, or real estate. My personal favorite is investing in stocks as they can provide you with great passive income. After you do initial research, you can sit back and watch the dividends roll in. If you pick the right companies, the dividends can increase over time, thus, increasing your income over time. I will be covering specific stocks on this website over time including those that I own and why I own them. You don’t have to super smart to do this. Mostly what’s required is the appropriate temperament as investing is as much psychological as it is analytical.


This is the category that most people focus on – cutting expenses (spending).

  • One of the first things that I did was create a budget. You can do this easily in Microsoft Excel or use online applications such as those created by Mint. I personally use an Excel spreadsheet as it allows me to be personally involved in tracking my income and expenses. I prepare a spreadsheet for each month and update each month’s income and expenses at least weekly. I use three simple categories – income, expenses, and taxes. Taxes reduce your income and are often people’s biggest expenses so they’re important to include. If you follow this type of format, you’ll be able to tell where you need to cut down spending. By tracking, you’ll be aware of where you’re overspending.
  • Put spending on Needs first. Needs include: rent/mortgage, groceries, utilities, car payments/public transit. Even within Needs, you can cut expenses. Shop at discount grocers and shop along the edges of grocery stores as the most expensive and unhealthy items are in the middle of the stores. Don’t get caught in an expense car lease or finance deal – know what you’ll be paying over the entire car term! Long-term auto loans have exploded in Canada and the US and people are unaware that they can eventually owe more than what their car is worth!
  • Reduce Wants whenever possible.
    • You don’t need to eat out every day. Cut eating out down slowly to one or two times a week – I’ve done this and eating out is actually much more enjoyable now. Some weeks, I never eat out. I find eating at home has also helped me lose weight. In the long-run this saves medical costs as a healthier person goes to the doctor, dentist, optometrist, chiropractor, and physiotherapist less.
    • Buy clothes on an as needed basis. I started doing this and realized that I don’t need clothes that often and I generally only wear a few pieces of clothing over and over again. You don’t need a closet with hundreds of items of clothing. I tried Project 333 which involves dressing with 33 items or less for 3 months (this includes shoes and accessories). I’ve been successful in this endeavor and only use about the same 25-30 items of clothing and accessories at all times – my closet is much cleaner.
    • You don’t need a fancy looking car. You can buy one once you’ve reached financial freedom. At this point in the game, you just need to get from Point A to Point B. Financial Samurai has a great rule for purchasing cars – Spend no more than 1/10th of your gross income on the purchase of a car.


Reducing taxes is often overlooked by people since it seems too hard to do or people think it is just a strategy for the rich. There are plenty of ways to reduce taxes for those in the middle class or even those in the lower middle class. I’ll be discussing some of these strategies in detail in later posts but I wanted to summarize some here:

  • If you’re Canadian, use an RRSP or TFSA to hold your investments and shelter your investment earnings.
  • If you’re Canadian, contribute to your employer’s RPP – your employer will often match your contribution. Hold investments in this plan and shelter your investment earnings.
  • If you’re an American, use an IRA or ROTH IRA to hold your investments and shelter your investment earnings.
  • If you’re an American, contribute to your 401(K) – your employer will often match your contribution. Hold investments in this plan and shelter your investment earnings.
  • Make investments in assets that pay dividends such as stocks of publicly traded companies. Dividends receive preferential tax treatment:
    • Qualified dividends (e.g., dividends from public companies) received by Americans receive preferential US tax treatment (taxed at 0%, 15%, and/or 20% compared to a potential ordinary tax rate of 39.6%).
    • Dividends received by Canadians from Canadian publicly traded companies receive preferential Canadian tax treatment.
  • Make investments in assets that earn you capital gains such as stocks and real estate. Earning capital gains are one way the rich get ahead:
    • Capital gains on investments (stocks, real estate, etc…) held for more than 12 months receive preferential US tax treatment for Americans (taxed at 0%, 15%, and/or 20% compared to a potential ordinary tax rate of 39.6%).
    • Only 50% of capital gains earned by Canadians on the sale of stocks, bonds, and real estate are taxable. 100% of employment income is taxable so you can see why earning capital gains is much better than earning employment income in Canada.

As noted above, there are a lot of ways to increase your income, and reduce your spending and taxes. Once you are spending less than you earn, you can begin to focus on Golden Rule #2 – Buy Assets, Not Liabilities.


4 thoughts on “Golden Rule #1 – Spend Less Than You Earn

  1. I can totally relate to this! People spend too much money on materialistic things, if people can start spending less, then most of their problems would be solved. Love this post!


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